Question 1

Government spending affects aggregate demand directly, and tax changes affect aggregate demand indirectly.Therefore, changes in

Accepted Answer

A) taxes are ineffective in changing aggregate demand. 
B) government spending affect aggregate demand more quickly than changes in taxes. 
C) taxes are virtually useless as a stabilization tool. 
D) government spending should be used with great caution. 
A) taxes are ineffective in changing aggregate demand. 
B) government spending affect aggregate demand more quickly than changes in taxes. 
C) taxes are virtually useless as a stabilization tool. 
D) government spending should be used with great caution.

Question 2

The setting of the level of government spending and taxation by government policymakers is known as

Accepted Answer

A) fiscal policy. 
B) monetary policy. 
C) taxation policy. 
D) None of the above is correct. 
A) fiscal policy. 
B) monetary policy. 
C) taxation policy. 
D) None of the above is correct.

Question 3

How do advocates of discretionary stabilization policy view frequent changes in spending and tax policy?

Accepted Answer

A) The changes make the economy more difficult to forecast. 
B) The changes make life more difficult and hectic for Congress and the Fed. 
C) The changes smooth out the business cycle, making planning easier. 
D) The changes cause more instability in the economy and make planning more difficult. 
A) The changes make the economy more difficult to forecast. 
B) The changes make life more difficult and hectic for Congress and the Fed. 
C) The changes smooth out the business cycle, making planning easier. 
D) The changes cause more instability in the economy and make planning more difficult.

Question 4

When the Fed decreases the money supply, interest rates

Accepted Answer

A) rise, causing velocity to fall. 
B) fall, causing velocity to fall. 
C) rise, causing velocity to rise. 
D) fall, causing velocity to rise. 
A) rise, causing velocity to fall. 
B) fall, causing velocity to fall. 
C) rise, causing velocity to rise. 
D) fall, causing velocity to rise.

Question 5

Which of the following policies would a Keynesian expect to produce the largest decrease in income?

Accepted Answer

A) A reduction in government spending of $100 billion 
B) A decrease in transfer payments of $100 billion 
C) An increase in government spending of $100 billion 
D) A tax increase of $100 billion 
A) A reduction in government spending of $100 billion 
B) A decrease in transfer payments of $100 billion 
C) An increase in government spending of $100 billion 
D) A tax increase of $100 billion

Question 6

In the short run, an increase in the quantity of money normally

Accepted Answer

A) has no effect; in the long run, V will increase. 
B) has no effect; in the long run, V will decrease. 
C) results in an increase in velocity. 
D) results in a decrease in velocity. 
A) has no effect; in the long run, V will increase. 
B) has no effect; in the long run, V will decrease. 
C) results in an increase in velocity. 
D) results in a decrease in velocity.

Question 7

Which of the following is the formula for velocity?

Accepted Answer

A) Velocity = nominal GDP / real GDP 
B) Velocity = real GDP / M 
C) Velocity = (P × Y) / (M × V) 
D) Velocity = nominal GDP / M 
A) Velocity = nominal GDP / real GDP 
B) Velocity = real GDP / M 
C) Velocity = (P × Y) / (M × V) 
D) Velocity = nominal GDP / M

Question 8

The equation of exchange is an accounting identity that

Accepted Answer

A) relates the money supply to nominal GDP. 
B) equates the demand for money with the supply of money. 
C) relates the money supply to real GDP. 
D) accounts use to balance assets and liabilities. 
A) relates the money supply to nominal GDP. 
B) equates the demand for money with the supply of money. 
C) relates the money supply to real GDP. 
D) accounts use to balance assets and liabilities.

Question 9

If the velocity of circulation is 10 and the money supply is $250, the value of transactions will be $25.

Accepted Answer

A) True 
 B)False

Question 10

The major difference between the Keynesian approach and the monetarist approach is that

Accepted Answer

A) Keynesian analysis explains an equilibrium condition and monetarism does not. 
B) in Keynesian analysis, money affects the economy by first affecting interest rates; monetarist analysis is not limited to working through interest rates. 
C) monetarism explains an equilibrium condition and Keynesian analysis does not. 
D) there are no differences. 
A) Keynesian analysis explains an equilibrium condition and monetarism does not. 
B) in Keynesian analysis, money affects the economy by first affecting interest rates; monetarist analysis is not limited to working through interest rates. 
C) monetarism explains an equilibrium condition and Keynesian analysis does not. 
D) there are no differences.

Question 11

How does government expenditure discourage some private investment?

Accepted Answer

Government often borrows money from the

Question 12

According to the monetarists, the velocity of money is

Accepted Answer

A) constant by definition. 
B) highly variable and unpredictable. 
C) constant as a matter of empirical proof. 
D) not constant but predictable. 
A) constant by definition. 
B) highly variable and unpredictable. 
C) constant as a matter of empirical proof. 
D) not constant but predictable.

Question 13

In the equation of exchange, velocity of money increases when

Accepted Answer

A) Y increases without any changes in P and M. 
B) Y falls without any changes in P. 
C) M increases without any changes in P and Y. 
D) P falls without any changes in Y and M. 
A) Y increases without any changes in P and M. 
B) Y falls without any changes in P. 
C) M increases without any changes in P and Y. 
D) P falls without any changes in Y and M.

Question 14

Which of the following is an example of unconventional monetary policy?

Accepted Answer

A) The Federal Reserve selling T-bills 
B) The Federal Reserve decreasing the discount rate 
C) The Federal Reserve purchasing mortgage-backed securities 
D) None of the above is correct. 
A) The Federal Reserve selling T-bills 
B) The Federal Reserve decreasing the discount rate 
C) The Federal Reserve purchasing mortgage-backed securities 
D) None of the above is correct.

Question 15

If the aggregate supply curve is flat,

Accepted Answer

A) contractionary fiscal or monetary policy will reduce inflation with little effect on real GDP. 
B) contractionary fiscal or monetary policy will cause significantly less inflation. 
C) expansionary fiscal or monetary policy will add significantly to real GDP will little effect on inflation. 
D) expansionary fiscal or monetary policy will add little to real GDP but will increase inflation significantly. 
A) contractionary fiscal or monetary policy will reduce inflation with little effect on real GDP. 
B) contractionary fiscal or monetary policy will cause significantly less inflation. 
C) expansionary fiscal or monetary policy will add significantly to real GDP will little effect on inflation. 
D) expansionary fiscal or monetary policy will add little to real GDP but will increase inflation significantly.

Question 16

The major limitation of both the Keynesian approach and the monetarist approach is that both

Accepted Answer

A) focus on the determination of interest rates to the exclusion of price levels. 
B) study the determination of real GDP equilibrium without including the price level. 
C) are ways of studying the aggregate demand curve, but to learn anything about the price level and output, the aggregate supply curve must be included in the analysis. 
D) concentrate on interest rates without considering changes in consumption or net exports. 
A) focus on the determination of interest rates to the exclusion of price levels. 
B) study the determination of real GDP equilibrium without including the price level. 
C) are ways of studying the aggregate demand curve, but to learn anything about the price level and output, the aggregate supply curve must be included in the analysis. 
D) concentrate on interest rates without considering changes in consumption or net exports.

Question 17

The speed with which money circulates through the economy is called the

Accepted Answer

A) oversimplified multiplier. 
B) velocity of circulation. 
C) exchange rate. 
D) money multiplier. 
A) oversimplified multiplier. 
B) velocity of circulation. 
C) exchange rate. 
D) money multiplier.

Question 18

The quantity theory of money is a theory asserting that the quantity of money available determines the price level and the growth rate in the quantity of money determines the inflation rate.

Accepted Answer

A) True 
 B)False

Question 19

Keynesian belief that the aggregate supply curve is relatively flat in the short run means that they expect their policies to cause

Accepted Answer

A) small increases in output and much inflation. 
B) small increases in output and little inflation. 
C) large increases in output and little inflation. 
D) large increases in output and much inflation. 
A) small increases in output and much inflation. 
B) small increases in output and little inflation. 
C) large increases in output and little inflation. 
D) large increases in output and much inflation.

Question 20

The aggregate supply curve is likely to be relatively flat in the short run

Accepted Answer

A) but relatively steep in the long run. 
B) and relatively flat in the long run. 
C) but vertical in the long run. 
D) None of the above is correct. 
A) but relatively steep in the long run. 
B) and relatively flat in the long run. 
C) but vertical in the long run. 
D) None of the above is correct.

Exam 31: The Debate Over Monetary and Fiscal Policy

Government spending affects aggregate demand directly, and tax changes affect aggregate demand indirectly.Therefore, changes in

The setting of the level of government spending and taxation by government policymakers is known as

How do advocates of discretionary stabilization policy view frequent changes in spending and tax policy?

When the Fed decreases the money supply, interest rates

Which of the following policies would a Keynesian expect to produce the largest decrease in income?

In the short run, an increase in the quantity of money normally

Which of the following is the formula for velocity?

The equation of exchange is an accounting identity that

If the velocity of circulation is 10 and the money supply is $250, the value of transactions will be $25.

The major difference between the Keynesian approach and the monetarist approach is that

How does government expenditure discourage some private investment?

According to the monetarists, the velocity of money is

In the equation of exchange, velocity of money increases when

Which of the following is an example of unconventional monetary policy?

If the aggregate supply curve is flat,

The major limitation of both the Keynesian approach and the monetarist approach is that both

The speed with which money circulates through the economy is called the

The quantity theory of money is a theory asserting that the quantity of money available determines the price level and the growth rate in the quantity of money determines the inflation rate.

Keynesian belief that the aggregate supply curve is relatively flat in the short run means that they expect their policies to cause

The aggregate supply curve is likely to be relatively flat in the short run

What Is Economics

The Economony: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Useconomy

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